How Will iOS 5 Affect AT&T and Verizon?

Once the next version of Apple’s mobile operating system becomes available for download, iOS users will have the ability to seamlessly communicate, share files, and wirelessly update their devices. With perks like this, it’s difficult to see how anyone could find anything too hateful in Cupertino’s latest cloud-based creation -- except for cellular carriers. Word around the campfire is that Apple knew word of the their new cloud-based offerings wouldn’t go over well with with telecoms. They were so certain of this that they even elected to keep their two closest North American wireless partners -- Verizon and AT&T -- out of the loop, with the cellular providers learning about the company’s cloud-based offerings at the same time as the rest of the world. Could Cupertino’s snub drive a wedge between Apple and the carriers?

Let’s break it down: This past week, Morgan Keegan reported that despite being over a year old, the iPhone 4 is still the best-selling handset in the United States. This statement is echoed by AT&T’s claim that during Q1 2011 alone, the mobile service provider activated 3.6 million iPhones, with 23% of those activated handsets going to new subscribers. If you’re wondering about Verizon, try this statement on for size: since the iPhone 4 first became available to the company’s subscribers earlier this year, the number of activations for the handset is now said to be on par with the the total number of Android handsets from all other hardware manufacturers offered by the carrier. No less popular is Apple’s iPad. In both its Wi-Fi and 3G configurations, and spanning two iterations, the iPad has managed to remain King of the Tablet. This translates into a whole lot of people using a whole lot of Apple hardware. With the features being touted as part of the impending iOS 5 update, we feel it safe to say that there won’t be a reduction in those numbers any time soon. That’s bad news for carriers.

Why?

Among iOS 5’s many new features is iMessage, which lets anyone rocking a modern iOS device to share an unlimited number of text messages, location data, contact information, images, or videos with anyone else with with an similarly equipped iOS 5 device. Given the size of Apple’s mobile hardware market share, this could potentially translate into the Cupertino-based company’s drinking a whole lot of telecom milkshake.

Traditionally, SMS messaging has been a cash cow for cellular providers. Most carriers offer text messaging to consumers at a cost of roughly one cent for every byte of data contained in an average sized SMS message. This makes for a price of approximately twenty cents per text message. Now, pair that up with the fact that in 2010, U.S. cellphone users fired off an average of 187.7 billion text messages per month. That’s adds up to... well, a lot of money. As iOS 5 allows users to do away with carrier-enabled SMS messaging in favor of iMessage, the growing popularity of Apple mobile hardware with consumers will translate into a substantial loss of coin for companies like Verizon and AT&T. Is it any wonder that Apple neglected to mention iMessage? Of course not.

Try not to feel too bad for the carriers though, as there’s a very good chance that they may be able to make up for what they lose in SMS fees through the revenue generated by data overages caused by iCloud’s data-heavy feature set.

As you may recall, during Steve Jobs’ section of this year’s WWDC keynote, he explained that iOS 5 devices would automatically sync content to one another via Apple’s iCloud servers whenever a Wi-Fi connection became available. Consumers, however, can also elect to enable content updates via 3G, which is where, no doubt carriers like Verizon and AT&T are hoping that the magic will happen. Someone rocking one of AT&T’s 2GB DataPro plans could easily surpass their monthly data allotment by syncing music, documents, photos, books and videos well before the end of the month, especially once other foibles like iMessages, email, Internet, and streaming content from sources such as Netflix, YouTube, or Rdio all get thrown into the mix too. Verizon users, who have been up until now been gorging themselves on unlimited smartphone data for $30 a month will soon be suffering the same fate as well, as the company will be transitioning their customers over to tiered data usage plans. It’ll be a data overage goldmine!

Provided their network can handle the traffic.

Earlier this year, AT&T purchased T-Mobile for a breezy $39 billion dollars, in an effort to buttress their overworked network infrastructure against the demands of data-slurping smartphones like the iPhone. With T-Mobile’s additional bandwidth and cellular sites at their disposal, it was AT&T’s hope that the complaints about their traditionally spotty coverage, abysmal call fidelity, and data reception would finally be put to rest. We’re willing to bet cash money that the new data load presented by iOS users who opt to utilize iCloud over a 3G connection is going to put a massive wrench in the telecom’s plans. This might be enough to sway frustrated iPhone hardware users with contracts with AT&T to switch over to Verizon, as was first predicted when Apple first partnered up with the carrier. After all, the ability to make voice calls and utilize other data-dependent handset features isn’t worth much if the network your phone is tied to can’t be relied upon. But what if Verizon’s network becomes overrun by the demand for iCloud content and the needs of AT&T switchers? Arrrgh! it’s all too complex—Stop this crazy thing, we wanna get off!

To be honest, there’s no way of knowing what iCloud will mean for Apple, consumers and carriers when the service goes live this Fall. All we can hope for is that the Cupertino’s cloud computing solution can be enjoyed by everyone… telecoms and users alike.